High-Speed Rail Poised to Alter China

Even as China prepares to open bullet train service from Beijing to Shanghai by July 1, this nation's steadily expanding high-speed rail network is being pilloried on a scale rare among Chinese citizens and news media.

But often overlooked, amid all the controversy, are the very real economic benefits that the world's most advanced fast rail system is bringing to China — and the competitive challenges it poses for the United States and Europe.

Just as building the interstate highway system a half-century ago made modern, national commerce more feasible in the United States, China's ambitious rail rollout is helping integrate the economy of this sprawling, populous nation — though on a much faster construction timetable and at significantly higher travel speeds than anything envisioned by the Eisenhower administration.

Work crews of as many as 100,000 people per line have built about half of the 10,000-mile network in just six years, in many cases ahead of schedule — including the Beijing-to-Shanghai line that was not originally expected to open until next year. The entire system is on course to be completed by 2020.

For the United States and Europe, the implications go beyond marveling at the pace of Communist-style civil engineering. China's manufacturing might and global export machine are likely to grow more powerful as 200-mile-an-hour trains link cities and provinces that were previously as much as 24 hours by road or rail from the entrepreneurial seacoast.

Zhen Qinan, a founder of the stock exchange in coastal Shenzhen and the recently retired chief executive of ZK Energy, a wind turbine producer in Changsha, said that high-speed trains were making it more convenient to base businesses here in Hunan Province. Populous Hunan has long provided labor to the factories of the east, but its mountains have tended to isolate it from the economic mainstream.

Mr. Zhen ticked off Hunan's attributes: "Land is much cheaper. Electricity is cheaper. Labor is cheaper."

Around China, real estate prices and investment have surged in the more than 200 inland cities that have already been connected by high-speed rail in the last three years. Businesses are flocking to these cities, now just a few hours by bullet train from China's busiest and most international metropolises.

Meanwhile, a shift in passenger traffic to the new high-speed rail routes has freed up congested older rail lines for freight. That has allowed coal mines and shippers to switch to cheaper rail transport from costly trucks for heavy cargos.

Because of this shift, plus the construction of additional freight lines, the tonnage hauled by China's rail system increased in 2010 by an amount equaling the entire freight carried last year by the combined rail systems of Britain, France, Germany and Poland, according to the World Bank.

The bullet train bonanza, and the competitive challenge it poses for the West, is only likely to increase with the opening of the 820-mile Beijing-to-Shanghai line, which will create a business corridor between China's two most dynamic cities. The railway ministry plans 90 bullet trains a day in each direction.

The trains will barrel along at initial speeds of 190 miles per hour, with plans to accelerate to 220 miles per hour by the summer of 2012, if the first year of operation goes smoothly.

Even at the initial speeds, they will take less than five hours to cover a distance comparable to New York to Atlanta — which requires nearly 18 hours on Amtrak.

China's huge investment in high-speed rail may be instructive to the United States, whether for proponents of federal rail investments or critics who consider bullet trains a boondoggle.

President Obama, who has proposed spending $53 billion on high-speed rail over the next six years, faced a setback in his budget deal in April with Congressional Republicans, who eliminated money for that plan this year.

Last fall, newly elected Republican governors in Florida, Ohio and Wisconsin turned down federal money their Democratic predecessors had won for new rail routes, worrying that their states could cover most of the costs for trains that would draw few riders.

But then, high-speed rail is not universally acclaimed in China, either. Financial regulators in Beijing have cautioned banks to monitor their rising exposure from hefty loans to the rail ministry. To pay for rapid deployment of the high-speed system, the ministry has borrowed more than $300 billion. It plans to invest an additional $115 billion this year, despite running losses on existing operations that it attributes mainly to rising diesel fuel costs for older lines, as well as rising interest payments.

Among the biggest beneficiaries of the high-speed rail system are firms that contribute nothing to defray its costs. Those would be freight shippers, which now have more exclusive use of the older rail lines, with fewer delays.

On the older tracks, the rail ministry has long been able to dictate that freight rates would subsidize passenger trains because the ministry owns those older tracks outright. The new, high-speed lines — passenger trains only — are owned by joint ventures between the rail ministry and provincial governments. That has prevented the ministry from forcing freight shippers to cross-subsidize the new high-speed services. As a result, passengers must pay much higher fares on the new trains than on the older ones.

The lack of freight subsidies is also causing concern in the rail and banking industries that the debt agreements of some joint ventures might need to be revised to extend the repayment of investment costs over more years.

For ordinary citizens, meanwhile, the steep prices for high-speed train tickets have touched China's raw nerve of rising income inequality.

"The government is just abusing the money of the common people," said one posting on an Internet discussion forum, defying the network's censorship.

From Changsha to Guangzhou, the one-way fare in economy class for the two-hour journey, at speeds of up to 210 miles per hour, is 333 renminbi ($51). That is comparable to a deeply discounted airfare, but expensive for a migrant worker from Hunan who might earn only $160 to $400 a month in wages in Guangzhou.

The same trip takes nine hours on an older, diesel train. But it costs only 99 renminbi ($15).

Chinese and foreign engineers have questioned the long-term strength of the concrete used in bridges and viaducts under contracts awarded during the term of the disgraced former rail minister, Liu Zhijun.

The rail ministry's new leaders, brought in after the corruption investigation, contend that safety concerns are misplaced. But they have responded to public anger over fares by announcing plans to lower the top speed on many routes on July 1 — which will not only address safety questions but will sharply reduce the amount of electricity consumed — and pass on the savings through reduced fares.

When the Beijing-to-Shanghai line opens, it will create a north-to-south artery with links to east-to-west rail lines at two dozen stations along the way.

"It's the network together that makes it work — knowing you can go from Shijiazhuang to Beijing and then transfer to Tianjin, so the coal guys can go to the port and conduct business with their shippers, for example," said John Scales, a rail expert in the Beijing office of the World Bank who has advised China.

Already, the longer routes elsewhere appear to draw much heavier ridership. The trains, which typically carry 600 passengers, sometimes sell out despite departures every 10 or 15 minutes, particularly on Fridays but sometimes even at lunchtime in the middle of the week.

Of course, high speed is relative. First, a passenger must actually get a seat.

Zhou Junde, a migrant construction worker with a large red and green tattoo of a hawk on the right side of his neck, stood in line here at the Changsha station on a recent Friday afternoon to buy a high-speed ticket to Guangzhou. But the next high-speed train was sold out, and so was the next one 10 minutes after that. He would have to wait 30 minutes to board a train with a seat.

"Sometimes," he said, "I come several hours early to get the departure I want."

High-Speed Rail Poised to Alter China

Even as China prepares to open bullet train service from Beijing to Shanghai by July 1, this nation's steadily expanding high-speed rail network is being pilloried on a scale rare among Chinese citizens and news media.

But often overlooked, amid all the controversy, are the very real economic benefits that the world's most advanced fast rail system is bringing to China — and the competitive challenges it poses for the United States and Europe.

Just as building the interstate highway system a half-century ago made modern, national commerce more feasible in the United States, China's ambitious rail rollout is helping integrate the economy of this sprawling, populous nation — though on a much faster construction timetable and at significantly higher travel speeds than anything envisioned by the Eisenhower administration.

Work crews of as many as 100,000 people per line have built about half of the 10,000-mile network in just six years, in many cases ahead of schedule — including the Beijing-to-Shanghai line that was not originally expected to open until next year. The entire system is on course to be completed by 2020.

For the United States and Europe, the implications go beyond marveling at the pace of Communist-style civil engineering. China's manufacturing might and global export machine are likely to grow more powerful as 200-mile-an-hour trains link cities and provinces that were previously as much as 24 hours by road or rail from the entrepreneurial seacoast.

Zhen Qinan, a founder of the stock exchange in coastal Shenzhen and the recently retired chief executive of ZK Energy, a wind turbine producer in Changsha, said that high-speed trains were making it more convenient to base businesses here in Hunan Province. Populous Hunan has long provided labor to the factories of the east, but its mountains have tended to isolate it from the economic mainstream.

Mr. Zhen ticked off Hunan's attributes: "Land is much cheaper. Electricity is cheaper. Labor is cheaper."

Around China, real estate prices and investment have surged in the more than 200 inland cities that have already been connected by high-speed rail in the last three years. Businesses are flocking to these cities, now just a few hours by bullet train from China's busiest and most international metropolises.

Meanwhile, a shift in passenger traffic to the new high-speed rail routes has freed up congested older rail lines for freight. That has allowed coal mines and shippers to switch to cheaper rail transport from costly trucks for heavy cargos.

Because of this shift, plus the construction of additional freight lines, the tonnage hauled by China's rail system increased in 2010 by an amount equaling the entire freight carried last year by the combined rail systems of Britain, France, Germany and Poland, according to the World Bank.

The bullet train bonanza, and the competitive challenge it poses for the West, is only likely to increase with the opening of the 820-mile Beijing-to-Shanghai line, which will create a business corridor between China's two most dynamic cities. The railway ministry plans 90 bullet trains a day in each direction.

The trains will barrel along at initial speeds of 190 miles per hour, with plans to accelerate to 220 miles per hour by the summer of 2012, if the first year of operation goes smoothly.

Even at the initial speeds, they will take less than five hours to cover a distance comparable to New York to Atlanta — which requires nearly 18 hours on Amtrak.

China's huge investment in high-speed rail may be instructive to the United States, whether for proponents of federal rail investments or critics who consider bullet trains a boondoggle.

President Obama, who has proposed spending $53 billion on high-speed rail over the next six years, faced a setback in his budget deal in April with Congressional Republicans, who eliminated money for that plan this year.

Last fall, newly elected Republican governors in Florida, Ohio and Wisconsin turned down federal money their Democratic predecessors had won for new rail routes, worrying that their states could cover most of the costs for trains that would draw few riders.

But then, high-speed rail is not universally acclaimed in China, either. Financial regulators in Beijing have cautioned banks to monitor their rising exposure from hefty loans to the rail ministry. To pay for rapid deployment of the high-speed system, the ministry has borrowed more than $300 billion. It plans to invest an additional $115 billion this year, despite running losses on existing operations that it attributes mainly to rising diesel fuel costs for older lines, as well as rising interest payments.

Among the biggest beneficiaries of the high-speed rail system are firms that contribute nothing to defray its costs. Those would be freight shippers, which now have more exclusive use of the older rail lines, with fewer delays.

On the older tracks, the rail ministry has long been able to dictate that freight rates would subsidize passenger trains because the ministry owns those older tracks outright. The new, high-speed lines — passenger trains only — are owned by joint ventures between the rail ministry and provincial governments. That has prevented the ministry from forcing freight shippers to cross-subsidize the new high-speed services. As a result, passengers must pay much higher fares on the new trains than on the older ones.

The lack of freight subsidies is also causing concern in the rail and banking industries that the debt agreements of some joint ventures might need to be revised to extend the repayment of investment costs over more years.

For ordinary citizens, meanwhile, the steep prices for high-speed train tickets have touched China's raw nerve of rising income inequality.

"The government is just abusing the money of the common people," said one posting on an Internet discussion forum, defying the network's censorship.

From Changsha to Guangzhou, the one-way fare in economy class for the two-hour journey, at speeds of up to 210 miles per hour, is 333 renminbi ($51). That is comparable to a deeply discounted airfare, but expensive for a migrant worker from Hunan who might earn only $160 to $400 a month in wages in Guangzhou.

The same trip takes nine hours on an older, diesel train. But it costs only 99 renminbi ($15).

Chinese and foreign engineers have questioned the long-term strength of the concrete used in bridges and viaducts under contracts awarded during the term of the disgraced former rail minister, Liu Zhijun.

The rail ministry's new leaders, brought in after the corruption investigation, contend that safety concerns are misplaced. But they have responded to public anger over fares by announcing plans to lower the top speed on many routes on July 1 — which will not only address safety questions but will sharply reduce the amount of electricity consumed — and pass on the savings through reduced fares.

When the Beijing-to-Shanghai line opens, it will create a north-to-south artery with links to east-to-west rail lines at two dozen stations along the way.

"It's the network together that makes it work — knowing you can go from Shijiazhuang to Beijing and then transfer to Tianjin, so the coal guys can go to the port and conduct business with their shippers, for example," said John Scales, a rail expert in the Beijing office of the World Bank who has advised China.

Already, the longer routes elsewhere appear to draw much heavier ridership. The trains, which typically carry 600 passengers, sometimes sell out despite departures every 10 or 15 minutes, particularly on Fridays but sometimes even at lunchtime in the middle of the week.

Of course, high speed is relative. First, a passenger must actually get a seat.

Zhou Junde, a migrant construction worker with a large red and green tattoo of a hawk on the right side of his neck, stood in line here at the Changsha station on a recent Friday afternoon to buy a high-speed ticket to Guangzhou. But the next high-speed train was sold out, and so was the next one 10 minutes after that. He would have to wait 30 minutes to board a train with a seat.

"Sometimes," he said, "I come several hours early to get the departure I want."